Employee Motivation and Engagement 

Most people work because they need a paycheck and the other rewards provided through employment. As this lesson will discuss below, compensation and benefits are tools that employers can use to help motivate employees. To better understand how this process works, it is beneficial to understand motivation and engagement as these concepts pertain to the workplace and employees.

To be successful in the workplace and help organizations achieve their goals and objectives, employees must be motivated and engaged while at work. Motivation is the act of providing someone with a reason for doing something. Motivation also can be a force or prompt that spurs a person to action. When a person is motivated, he or she is eager to take action or perform work. Engagement complements motivation. When an employee is engaged, he or she is committed to getting the work done and may even have an emotional connection to the work.

Employers must recognize that individuals are motivated by a variety of things, and something that is a primary motivator for one person may have little or no motivational value to another person. Scholars have offered various theories about what motivates people. These theories can be divided into two categories—needs-based theories and process-based theories (Nickels, McHugh, & McHugh, 2013).

• Needs-based theories argue that individuals are motivated when their actions will enable them to obtain the things that they need.
• Process-based theories argue that motivation is a more rational process, whereby individuals analyze their environment, draw conclusions regarding it, and then take actions that they feel are most appropriate for the situation.

A variety of theories exist in each category. We will examine two of the most widely accepted needs-based theories and two of the most widely accepted process-based theories (Schermerhorn, Hunt, & Osborn, 2005).

Needs-based Theory: Maslow’s Hierarchy of Needs

Developed by Abraham Maslow in 1943, this theory argues that every individual has five categories of needs, which occur in a hierarchy, with the most basic needs at the bottom. Only when basic and lower level needs are met can individuals advance up the hierarchy to meet higher level needs. According to Maslow, the five levels of needs are physiological, safety, social, self-esteem, and self-actualization.

Physiological needs are the bottom level of needs and cover the vital things that individuals need to survive, including oxygen to breathe, food and water to nourish the body, sleep to restore the body, and shelter to provide protection from the environment. In the workplace, providing breaks while on the job to allow employees to rest and eat is one way to meet physiological needs.

Safety needs are the second level and include the need for individuals to be safe, have good health, and enjoy financial stability. In the workplace, providing employees with safe working conditions and a retirement fund to offer financial security when employees retire helps meet safety needs.

The next level is social needs, which are concerned with friendship and acceptance. To have their social needs met, individuals must feel that other people care about and respect them. In the workplace, relationships with co-workers can help meet social needs.

Self-esteem needs are the fourth level in the hierarchy and are based in how individuals need to feel good about themselves, to have self-confidence, status in life, and recognition for accomplishments. In the workplace, paying attention to employees’ work and recognizing them when they achieve goals, objectives, and perform exceptionally well can help meet self-esteem needs.

The top level of the hierarchy is self-actualization, which is determined by how individuals experience personal development, obtaining truth and wisdom about life. In the workplace, individuals achieve self-actualization by doing work that is challenging and meaningful, allowing them to feel that they are using their talents and meeting their potential.

Needs-based Theory: Two-factor Theory

Developed by Frederick Herzberg, this theory argues that job satisfaction is a function of hygiene and motivator factors.

Hygiene factors refer to things such as job security, a competitive salary, and benefits. Herzberg argued that if employees do not feel that they are being paid a fair salary and/or if they dislike other things about their job, such as the relationship they have with co-workers, they will be dissatisfied and will not do their best work. But satisfaction with the hygiene factors may not be sufficient to promote job satisfaction.

Motivator factors refer to things such as enjoyment from doing assigned tasks, feeling a sense of achievement, and receiving recognition for work performed. When employees are pleased with the motivator factors in their job, Herzberg argued they will experience job satisfaction and be motivated to be engaged, producing their best possible work.

Process-based Theory: Equity Theory

Developed by John Stacey Adams in 1963, this theory argues that fairness is a primary motivator for employees. The basic ideas of this theory include the following.

• If an employee feels that his or her efforts at work are recognized and rewarded appropriately, he or she will be motivated to perform as well as possible.
• If an employee feels that his or her efforts are not appreciated and/or are not being adequately compensated, that individual will not be motivated to perform well.
• Employees compare their situations to those of co-workers doing similar work. If they think a co-worker is being recognized or rewarded more but that co-worker does not produce more or better work, they will regard this as unfair.

Process-based Theory: Expectancy Theory

Expectancy theory argues that individuals use a rational decision making process to decide whether it is to their benefit to put more or less effort into their work. As part of this process, individuals ask themselves three questions:

• In this situation, will a high level of effort result in the preferred outcomes? This is the expectancy portion of the theory. If an individual expects that putting forth more effort will lead to preferred results, he or she is more likely to expend that effort.
• If the preferred outcomes result, will this lead to rewards? This is the instrumentality portion of the theory. If an individual thinks that putting a high level of effort into a task will yield preferred outcomes, which will lead to rewards, he or she is more likely to be motivated to put forth a high level of effort.
• If the preferred outcomes lead to rewards, what is the value of those rewards? This is the valence portion of the theory. If an individual thinks that putting a high level of effort into a task will lead to preferred outcomes and rewards AND those rewards will be desirable, he or she is more likely to be motivated to put forth a high level of effort.

When employers make decisions about employee compensation and benefits, which are discussed below, they should consider what motivates their employees and encourages them to be engaged at work. Without motivation and engagement, employees likely will not be successful in their jobs. Without successful employees, organizations cannot achieve their goals and objectives.

Employee Compensation

One way to motivate employees and help them feel engaged on the job is to compensate them in a manner that they regard as fair and equitable for the type and level of work that they perform. Compensation can be defined as the method used to pay an employee for his or her work. The different types of pay systems used in the United States to compensate employees include the following (Nickels, McHugh, & McHugh, 2013, p. 311):

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• Salary

Compensation is fixed and paid on a weekly, monthly, or other basis. Generally, salaried employees do not receive additional compensation when they work overtime.

Hourly wages or daywork refers to employees that are paid a specific rate of pay per hour or day that they work. When paid by the hour, employees must receive at least minimum wage as established by the Fair Labor Standards Act, which is enforced by the U.S. Department of Labor.

Piecework employees are paid according to the number of items they produce rather than the amount of time they work. Piecework systems create “powerful incentives to work efficiently and productively” (Nickels, McHugh, & McHugh, 2013, p. 311).

Commission is where compensation is based on a percentage of sales.

For bonus plans, employees receive extra compensation for achieving specific objectives. Bonus plans include two types. In monetary plans, employees receive money as their bonus payment. In cashless plans, employees receive a nonmonetary reward such as movie tickets, time off work, gift certificates, thank you notes, and other rewards that recognize their accomplishments.

For profit-sharing, employees receive annual bonuses based on the amount of profits earned by the organization.

For gain-sharing, employees receive annual bonuses based on their achievement of specific objectives such as production targets or customer satisfaction goals.

For stock options, employees are given the option of purchasing stock in the company at a specified price that is generally less than what the stock sells for on the stock market.

Pay-for-performance System

According to Cascio (2010), in today’s marketplace, HRM professionals generally promote a pay-for-performance system to determine employee compensation. Under this system, employees are paid according to their contributions and value that they are adding to an organization. This has resulted in many organizations having policies such as the following regarding employee pay:

• Compensation is no longer an entitlement, deserved by employees on the basis of seniority. Instead, employees must demonstrate that they have contributed to an organization and are deserving of compensation.
• Rather than aligning pay increases with inflation, organizations award increases on the basis of merit. This makes pay more variable, and it turns compensation into a reward that employees receive when they perform well.
• Instead of paying employees on the basis of what competitors are paying for similar work, organizations focus more on paying what is affordable as per the organization’s budget.
• Organizations are inclined to restrict the amounts awarded for compensation in an effort to control the costs of salaries, wages, and other forms of compensation.

Pay Compression

Organizations are more willing to outsource jobs overseas in an effort to reduce costs of compensation.

Organizations may find that pay-for-performance is not the optimal approach to meet the needs of an organization and its employees. Two other options for pay systems include the following (Cascio 2010):

• In a competency-based pay system employees are paid according to their skills and their level of knowledge, as opposed to the specific jobs that they are doing for an organization.
• In a market-based pay system, employees are paid according to benchmarks and matches for the same jobs in the marketplace.

Let’s look at several tools used by HRM professionals to establish a pay system.

Current job descriptions that provide an accurate understanding of the work specific positions accomplish for an organization.

Job evaluation methods that rank jobs according to their overall value to an organization and their importance in enabling an organization to achieve its goals and objectives.

Pay surveys that provide market data about compensation for different types of positions and the work they accomplish and attach specific pay rates to specific positions.

A pay structure that classifies jobs according to grade levels with associated pay rates. To develop a pay structure, HRM professionals should adhere to the following guidelines (Cascio, 2010):

• Group jobs that have a similar general value into the same pay grade.
• Place jobs that are clearly different in value into different pay grades.
• Ensure that a pay structure includes “a smooth progression of point groupings” (Cascio 2010, 431).
• Ensure that an updated pay structure fits realistically into an organization’s existing structure for allocating pay.
• Ensure that established pay grades are reasonably compatible with relevant pay grades and patterns in the marketplace.

Regardless of their philosophies and policies regarding compensation, organizations must strive to pay employees in a manner that is fair and equitable. According to Cascio (2010), to achieve this, organizations must be concerned with three types of equity: internal, external and individual.

IInternal equity is concerned with whether pay rates are fair among an organization’s different positions by providing compensation rates that are equitable in terms of each position’s worth to an organization. In other words, are the most critical and valuable positions receiving the highest rates of pay?

External equity is concerned with whether pay rates for an organization’s positions are comparable, and competitive, with similar positions in other organizations.

Individual equity is concerned with whether the rate of pay awarded to specific employees is fair when compared to other employees in the same or similar positions who provide a comparable level and effort of work.

n addition to equity, HRM professionals will have other issues that must be considered when establishing pay systems. For example, they must be aware of inflation and consider how this impacts the value of paychecks provided to employees. In addition, HRM professionals may be faced with pay compression issues, which occur when the ratios of pay rates between jobs and/or between pay grades become narrow, creating smaller differences in pay amounts among employees who should have larger differences. Some situations where pay compression may occur include the following (Cascio, 2010).

• New employees start at higher rates of pay, resulting in smaller differences between the pay rates of new employees and employees who have been with the organization for a longer term.
• Unionized employees receive pay increases that are greater than those provided to non-union employees.
• New college graduates are hired for management and professional jobs, receiving rates of pay that are higher than current jobholders.
• Some employees receive excessive overtime, yielding much larger paychecks than their peers.

Employee Benefits: Fringe Benefits

In addition to monetary compensation, employees often receive fringe benefits, which can be defined as things such as retirement and pension plans, paid sick leave, paid vacation days, and health insurance that provide employees with additional compensation intended to supplement their base salaries or wages. Fringe benefits are costly to organizations just like monetary compensation. But employees generally do not view fringe benefits in terms of monetary worth. Instead, to employees, fringe benefits have values that may not be aligned with their associated dollar cost. This means that a fringe benefit that costs an organization many dollars to provide may have limited value to employees, while fringe benefits that are less costly may have greater value to employees. When deciding which fringe benefits to offer employees, organizations must consider not only the actual costs of each particular fringe benefit but its value to employees.

Generally, fringe benefits fall into the following three categories (Cascio, 2010).

• Security and health refers to fringe benefits such as health insurance, sick leave, and pension plans, that are intended to support employees when they have health issues and offer security when they are unable to work or decide to retire.
• Payments for time not worked refers to fringe benefits such as paid vacations, grievance pay, and sabbatical leaves, which are intended to support employees when they are required to be off work or need to take time for personal development or enjoyment.
• Employee services refers to a variety of fringe benefits such as the use of a company car, childcare, fitness programs, holiday bonuses, and flexible work schedules, which are intended to show appreciation for employees by providing them with perks that they value because the fringe benefits enrich their personal lives.

Employee Benefits: Intangible Rewards

In addition to fringe benefits that are costly to organizations, some employees may be motivated by intangible rewards. For example, some employees appreciate gestures such as letters of appreciation, larger office space, and assigned parking spaces. Other employees value opportunities for training, development, and promotions. These type of rewards often fall under the fringe benefit category of employee services.

Some employees may be motivated primarily by monetary compensation. But for other employees, fringe benefits may be a greater motivator. When deciding how to compensate employees, organizations must understand which types of compensation are most important to each individual employee, and, as much as possible, those employees should be rewarded with these types of compensation.

Types of Employees

As they develop compensation systems and determine the fringe benefits that employees will receive, organizations may need to consider the type of employees who will receive these rewards. Generally, organizations have two types of employees—exempt and non-exempt.

Exempt employees are exempt from, or not subject to, the overtime provisions found in the Fair Labor Standards Act. Such employees are not entitled to overtime pay, regardless of how many hours they work per week. Generally, exempt employees include managers and those who have specialized skills. Such employees are typically paid a set salary per year or some other time period as designated by HRM professionals, and that salary is often higher than salaries paid to non-exempt employees. In addition, exempt employees often receive more lucrative fringe benefits, such as bonuses and stock options. Exempt employees also include those in positions such as farm workers, babysitters, and elderly companions. 

Non-exempt employees are not exempt and, as such, are entitled to overtime pay for each hour worked in excess of 40 hours per week. Generally, non-exempt employees work in lower level and unskilled positions that receive hourly wages or another form of compensation other than a salary. Non-exempt employees may receive more basic fringe benefits that have less value than those provided to exempt employees.